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The Sam M. Walton College of Business

Episode 145: Carol Goforth on Cryptocurrency and Regulatory Issues

October 20, 2021  |  By Matt Waller

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In this episode of Be EPIC, Matt is joined by Carol Goforth, university professor at the University of Arkansas School of Law. Carol specializes in business associations and securities regulations, and regulation of crypto assets and transactions. She is a published author and member of the Walton College Academic Faculty Network in the Blockchain Center of Excellence

Listen as Carol and Matt discuss the infrastructure bill and how cryptocurrency plays a role in it.

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Episode Transcript


0:00:07.3 Matt Waller: Hi, I'm Matt Waller, Dean of the Sam M. Walton College of Business. Welcome to Be EPIC, the podcast where we explore excellence, professionalism, innovation and collegiality, and what those values mean in business, education and your life today. I have with me today, Carol Goforth, who was university professor at the University of Arkansas School of Law. She specializes in business associations and securities regulations. In the past few years, she's become a leader in scholarship involving the regulation of crypto assets and transactions. In March of 2020, she published a book called Regulation of Crypto Transactions, which I purchased and have read parts of several times now. It is probably the first comprehensive textbook on that subject. She's also published articles regarding crypto transactions and blockchains in top law journals, and she's also a member of the academic faculty network in the Walton College here, our blockchain Center of Excellence. Thank you so much, Carol, for taking time to meet with us today. I appreciate it.

0:01:33.0 Carol Goforth: It's my pleasure.

0:01:35.1 Matt Waller: Carol, if you don't mind, I'd kinda like to start with a current topic and then get into some more of the details around regulation of crypto and so forth. The regulation of crypto is in the news right now because of the infrastructure bill, and there's been some debate over what's going on with the crypto regulations in the bill, but I believe there's bipartisan support for something at this point.


0:02:03.0 Matt Waller: What is that issue if you wouldn't mind?

0:02:06.3 Carol Goforth: Sure, a few years ago, the IRS took the position that any kind of crypto asset was property. And so if you sold or transferred your crypto asset, whichever kind of asset it was, Bitcoin, Ethereum, whatever it was, you were supposed to report any gain as income. And then whenever you have income, the IRS expects you to pay taxes on it. At the same time that major exchanges were suggesting that there were tens of thousands of Americans who were using their exchanges and making lots of money on these transactions, the IRS had only a handful of folks reporting that income or paying taxes. And so the IRS got active and asked Coinbase and some other exchanges to provide information about which customers were making money, so the IRS could then send out friendly reminder letters, "Pay your taxes or else." And what happened with this new infrastructure bill is it has a very hefty price tag. And as one of the mechanisms to help pay for that price tag, there was an inclusion of a provision that said anybody who is a broker for a crypto transaction will have the obligation to report that transaction, so that there...

0:03:45.8 Carol Goforth: We don't have to wait for the IRS to go off and get a subpoena, there is an affirmative reporting obligation for all crypto brokers to enable the IRS to enforce an already existing tax obligation. The problem was, and is, that the definition of broker in the bill is anyone who assists or facilitates the transfer of crypto from one person to another. And that definition is broad enough not only to include major crypto exchanges, like Coinbase or Kraken, but also potentially folks who work as software developers because without the programming, you wouldn't have the transfer. The issuers, because without the issuance, they wouldn't be able to have the transfer occurring. And folks who mine the crypto or act as validators prior to inclusion of transactions in the blockchain ledger.

0:04:51.2 Carol Goforth: And those folks, a lot of them do not have access to the information that under the reporting requirements they are required to report. If I'm a miner, I don't know who all of the folks on that block that I've just validated are. And consequently, the reporting obligation might make it impossible for miners to act in compliance with the law. And so it was miners and validators and programmers who really took the step of trying to convince the Senate that they needed to amend the language. There was an amendment that, as you mentioned, had widespread bipartisan support. One Republican senator wanted an extra $50 million for defense spending and wouldn't approve it without that being added.

0:05:51.0 Carol Goforth: Under the process they were using, it took unanimous consent to include the amendment. He didn't consent, the rest didn't consent to his amendment, so because of one vote that amendment failed. There's still the possibility that will happen in the House and then the reconciliation process would occur. And there's still the possibility that since this doesn't take effect until 2023, that between now and then a change could be made, but that's the issue, that's the problem that the language has created.

0:06:25.2 Matt Waller: Well, thank you, that's a really clear explanation. So you really shifted gears, you pivoted in your career. You've been a professor here for quite a long time, but you made a decision at some point to really dig into blockchain and crypto. What got you interested in that?

0:06:45.8 Carol Goforth: You did, you invited the law school to send a representative to a meeting of potential entrepreneurs in Northwest Arkansas who were interested in blockchain. "Jeez, you're a legal person who could come over and provide input." And at that time which, four or five years ago, there really was not anybody in the law school who was focused on crypto, and I wasn't. So I went to the meeting and talked to these folks, found them to be engaging and informed, but at the same time engaging and informed about the technology and the potential, but not about the legal ramifications of that potential. And when I went back and looked at the existing legal literature and the material available to help entrepreneurs, help businesses and help their legal advisors, it was so minimal. And the startup costs, if you were starting from zero and trying to get a toehold into this environment, the start-up cost in terms of time was significant.

0:08:00.9 Carol Goforth: I was incredibly fortunate to have a sabbatical, which I essentially used to read literally thousands of comments and articles dealing with crypto. Some very, very poorly written, some filled with misinformation, but eventually I got enough of an idea of what folks were talking about and what was really going on, so that I was able to start adding to the available explanatory material with a goal to helping people understand what was going on with the regulation of this new technology. And it was an area that there was a need.

0:08:40.6 Carol Goforth: If you go look back at my career, yeah, I've been in academia for 30 years, and up until crypto, everybody said, "Carol, find an area and stick to it. You write one or two articles and then you're on a new topic." And it was like, "I'm bored. I want something new." Crypto changes so fast, it is so rapidly evolving. It's always new. It's always exciting. And so, yeah, I have a book. I have, I think a dozen articles or shorter comments out there.

0:09:11.8 Matt Waller: Well, I remember... I think it was your first article, I'm not sure, but I read it. It was called Cryptionary: A Lawyer's Guide to Cryptocurrency, or something. I don't remember.

0:09:23.8 Carol Goforth: It was the definition, so just so people could read about it and understand what in the heck is going on, because it is such a new area and the folks who are in it love their jargon. They have made up words. They smashed a couple of words together and voila, a cryptoasset. Or they take a word like whale and it means something else, or they make up... They love acronyms, even misspelled acronyms like HODL, which is a misspelling, a typo of hold. I mean, it's just a funny space.

0:10:04.6 Matt Waller: It is, but it's so important because it really seems to have the potential of disrupting a lot of current industries and certainly enabling all kinds of business activity that wasn't possible before. So now that you're a few years into this, are there any areas that really are sort of starting to hit an equilibrium in terms of agreement on regulatory issues around crypto?

0:10:30.6 Carol Goforth: The area internationally where there is the biggest and most cohesive set of regulations has to do with the anti-money laundering, the use of crypto assets to facilitate or pay for criminal activity. And that was one of the first areas in the United States that we regulated through the Department of Treasury's Financial Crimes Enforcement Network, FinCEN. It imposes certain reporting requirements, and very similar rules have been adopted internationally. It sets minimum standards by the various financial assets task force and the G7 and the G20 back those, and they are in place in most parts of the world with only a few jurisdictions, the North Korea and Syria, that are hold-outs and not complying with the requirements.

0:11:28.8 Carol Goforth: And then consequently, there are economic sanctions in those jurisdictions, so I think the consensus is in the financial area, which is probably also the place where there is the largest potential for disruption. Outside of that, I think securities regulation, we are a long way off from having a consistent approach. And in the use of blockchain technology that doesn't necessarily rely on crypto assets as having value or serving as a currency, blockchain, the structure of distributed ledger technology for things like supply chain management and oversight, transparency, those aren't so much as disruptive as facilitating business. And I think that probably is the biggest upside long-term for blockchain. It is going to be in what they're calling blockchain 4.0, the use and implementation of technology on a broader basis by mainstream business.

0:12:36.9 Matt Waller: So I remember talking to you a couple of years ago, and we were talking about how it seemed like different regulatory agencies in the United States, they all seemed to want to regulate crypto. Is that still the case or is that settled down a bit?

0:12:53.5 Carol Goforth: No, not only do we have the IRS saying, "It's property," and the Commodities Future Trading Commission saying, "It's commodities," and the SEC saying, "No, it's security," and FinCEN saying, "It's currency," we now have the Office... OFAC, the Office of Foreign Asset Control getting involved. We have the Consumer Financial Protection Bureau, which has seen 130% increase in the number of fraud complaints involving crypto. We have the Federal Trade Commission worrying about false advertising involving crypto. So rather than seeing a consolidation into one of the more active longer standing agencies, we're simply seeing more agencies saying, I need a piece of it, or I have to take a piece of it, so... Yep, a big mess.

0:13:49.3 Matt Waller: It seems like that sort of competition for regulating it could create additional uncertainty in business people in terms of what they should be doing or how they should be doing it, there's a lot of business people right now that really disregarded and downplayed the importance of blockchain and crypto. And now they realize, "I at least need to pay attention to this." But there's also a huge number that are doing experiments, creating prototypes, because they don't wanna get hurt by ignoring what's going on. But there's also fear, what if we do this in a way that is illegal or violate some important regulations? Or there's a lot of, as you were saying, fraudulent activity. What advice would you have for them in terms of trying to keep up on this and understand it?

0:14:48.2 Carol Goforth: Get a really good lawyer, and I am not just saying that because I'm a law professor turning out new lawyers, but competent legal advice experienced in crypto is probably the best bit of advice I can offer.

0:15:06.5 Matt Waller: Do you have any idea how many attorneys there are that have experience in crypto in the US?

0:15:12.6 Carol Goforth: I don't. I know that most of the larger firms have in their fintech area, their financial technology, they do have crypto specialists. In fact, there are head hunters out there that advertise for attorneys with a crypto specialty, and a number of folks who've been involved with the SEC and CFTC who have experience from the regulatory side, have left those agencies and have gone into private practice, so I know it's a growing field, I know that you won't find one in every small town in Arkansas or any other state, but they are out there. They're expensive because they are technical specialists, but the downside is so high that it is worth the protection of getting good legal advice.

0:16:06.3 Matt Waller: You published a book a little over a year ago on regulatory issues in crypto and...

0:16:12.5 Carol Goforth: You wanna know when the second edition is coming out? [chuckle]

0:16:14.8 Matt Waller: When?

0:16:16.1 Carol Goforth: We're submitting a second edition in October. I now have a co-author, Yuliya Guseva from Rutgers School of Law. She has an extensive experience in the international side of crypto regulation, comparing the US approach to international law and doing some statistical analysis of the kinds of enforcement efforts that we've had. And we've committed to a new edition because even in the two years since this book was submitted to the publisher, wow have things changed.

0:16:51.5 Matt Waller: Is that right?

0:16:53.1 Carol Goforth: Yep. Major cases that have come down. We've had the first actual rules promulgated rather than simply interpretations of existing rules. FinCEN has some rules regarding what are considered digital assets. We have movement on all kinds of fronts, and we have new developments, we have things that were sort of on the cutting edge a couple of years ago, that are now in the news; NFTs, non-fungible tokens, the need to have additional regulation of exchanges, some of the international or extra territorial application of US law, there's just been so many things because this is an area, as I said, moves so fast.

0:17:39.9 Matt Waller: It really does. Do you see young law school students wanting to go into this area of law?

0:17:46.7 Carol Goforth: Yeah, I do. And it's encouraging to me. They come with more technological sophistication than I have in a general sense. They don't have the regulatory background, but they get the idea of a digital asset in a way that folks of my generation just don't. What? It's a digital string of numbers and it's worth this morning, $45,000? What? And they just... Well, yeah, everything's digital, I don't carry cash anymore. So for them, it's so much easier to understand at an intuitive level what this digital asset, what a crypto asset is, and then for them to take that understanding... Some of them bought Bitcoin, some of them have, they have a whole Bitcoin and they're just holding it 'cause they think it's the next great thing, and they are very excited about that. It's neat for me for a teacher, because I tell my students, When you go out you'll be practicing with all these folks who've had 20, 30 years experience. You go out and you start your practice having this background in crypto, you're ahead of the game, you're ahead of all these other... Or most of these other lawyers. So I think it's a great opportunity, so I'm very excited that so many of them are interested in it.

0:19:07.7 Matt Waller: Well, and they're fortunate, 'cause there aren't a lot of law professors who have done the kind of research you've done on this. They're fortunate to be able to have you as a professor. Do you have a class just on crypto?

0:19:22.7 Carol Goforth: When I get to teach it, I have a class on regulation of crypto transactions. And with luck, I'll be teaching it in the spring.

0:19:31.3 Matt Waller: I suppose that's an elective course they can choose...

0:19:34.3 Carol Goforth: Yeah, the law school has one year of required courses consistent with most other law schools, and then only a couple of required courses in the upper two years, so yeah, it's a complete elective. There aren't any pre-requisites other than having finished your first year of law students, so you're used to dealing with legal materials.

0:19:54.2 Matt Waller: You know, it really seems like yesterday when you and I were first talking about this, when we had that meeting and after that meeting, it's hard to believe several years have passed. But it's really encouraging to see you've been able to make so much progress and all the publications you've had. And congratulations on your second edition, that's remarkable too.

0:20:17.2 Carol Goforth: Thanks. [chuckle]

0:20:19.1 Matt Waller: Thank you so much for taking time to visit with me about this today, Carol.

0:20:23.8 Carol Goforth: My pleasure.

0:20:27.6 Matt Waller: Thanks for listening to today's episode of The Be EPIC Podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcasts. Be sure to subscribe and rate us. You can find current and past episodes by searching beepicpodcast, one word, that's B-E-E-P-I-C podcast. And now Be EPIC.

Matt WallerMatthew A. Waller is the dean of the Sam M. Walton College of Business, Sam M. Walton Leadership Chair and professor of supply chain management. He is also the host for the Be EPIC Podcast for Walton College.


Walton College's EPIC values -- Excellence, Professionalism, Innovation and Collegiality -- are the heart of Dean Waller’s podcast. Since the beginning of the series, Waller has interviewed business professionals, industry experts, CEOs and Walton College students to bring listeners first-hand accounts directly from the entrepreneurial world.


Waller is an SEC Academic Leadership Fellow and coauthor of “The Definitive Guide to Inventory Management: Principles and Strategies for the Efficient Flow of Inventory across the Supply Chain,” published by Pearson Education. He is the former co-editor-in-chief of Journal of Business Logistics. His opinion pieces have appeared in Wall Street Journal Asia and Financial Times.


Waller received an M.S. and Ph.D. from Pennsylvania State University and a B.S.B.A., summa cum laude, from the University of Missouri.

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